The General Economics Thread

@ Fighteer: And God knows what that'll do to the world economy and the rather tense international situations worldwide...

Plus the Keynesian solution will be rather more difficult considering the rather blurry division between the private and public sectors in China.

edited 14th Mar '14 8:06:51 AM by Greenmantle

China claims to be a Communist country but its economy looks an awful lot like the Robber Baron era of the late nineteenth and early twentieth centuries in America. It's not going to be able to keep that up for much longer, and it has nukes and a huge army. Not a good combination.

About the only good news (for us, not them) is that if China does have a collapse, it'll have to focus the vast majority of its military on preventing and suppressing revolts. But its neighbors would be well advised to look to their own defenses, as history has provided plenty of examples of conservative regimes starting wars to cover up domestic troubles. (And yes, I do include the United States in that list, thank you very much George W. Bush...)

edited 14th Mar '14 8:13:20 AM by Fighteer

Question: If a country has bad and/or worsening fundamentals, but is kept functional by foreign cashflow, how long (assuming the cashflow itself doesn't decrease) can a nation be kept going? What I mean to say is, at what point does the sheer dysnfunction of a nation, economically and otherwise, overtake the benefit of the cashflow?

Predicting the exact moment when such an economy tips the line into a crash is very difficult. It's a bit like making quantum observations; you know that the electron will jump a level, just not exactly when.

Think of an economy as a massive agglomeration of individually unpredictable events and you'll get the picture. You can apply theory and models to recognize trends, but you cannot know exactly what's going to happen from day to day.

What you can look for is discrete events that jar confidence and could precipitate a general credit run.

The thing is that, until such an event happens, the economy will continue to look like it's in a boom, because everyone's invested (literally) in keeping the upward swing going. They have to; stopping it would mean popping the bubble. It's a kind of collective insanity, with everybody frantically adding cards to the stack in the hopes that they won't be caught on top when it starts to fall.

edited 14th Mar '14 8:23:18 AM by Fighteer

Yet we have numerous economists in the US who refuse to acknowledge this fact.

FTFY.

Edit: You can predict aggregate trends, such as the movement of various indicators in response to certain events. If you do that, then certain models start to look better than others.

Going back to Schiff a bit, his mentality and the mentality of his fellows is akin to that of the person who predicts that The World Is Always Doomed and then reminisces to his buddies, "Hey guys, do you remember that one time when I was right?" The history of Austrian doomsaying resembles the Apocalypse Day Planner.

Also, people love soothsayers so long as their predictions fit neatly into established prejudices. A soothsayer who is right too often, or makes unpopular predictions, tends to get burned at the stake.

edited 14th Mar '14 9:24:16 AM by Fighteer

Double Post: I misstated my earlier response to the Forbes article about Clinton. You are supposed to raise taxes in a boom, not lower them, to constrain too-rapid growth. Clinton, by lowering taxes, was playing a conservative's game. So the article was right to some extent.

Question: If the US dollar did collapse, then on a scale from 1 to the stars coming right, how screwed would we be?

Pretty screwed. The Great Depression would look like a picnic at the park.

The problem with that scenario is that there is no rational mechanism for it to happen, short of Congress and the President jointly deciding to repudiate the national debt or an asteroid hitting North America.

edited 14th Mar '14 10:06:17 AM by Fighteer

I'm assuming a catastrophic natural disaster like Yellowstone erupting would also do that but we'd have bigger problems at that point.

Exactly. The point is that this hypothetical collapse of the dollar is an effect, not a cause. It can't happen in a vacuum. Whatever drives it would have such obvious up-front effects that the consequences to the dollar would be a footnote to the catastrophe.

People, all over the world, going to work and producing things (and paying taxes) is what gives money of all sorts its value. This is true no matter what form the currency takes.

edited 14th Mar '14 11:30:44 AM by Fighteer

Note: My previous question was with regard to Pakistan, which recently just got an infusion of Gulf billions, allowing them to put off reforms yet again. Trying to figure out how long that can last with the internal fundamentals collapsing and less and less people paying taxes. The only solution their government is enacting is to sell the state owned corporations, like the national flag carrier, a massive (yet underutilized) steel mill, power distribution (but not generation) companies, a couple of banks, and some oil companies.

Can foreign dole (assuming it doesn't run out) keep the situation muddling along or does it eventually collapse?

You risk a hyperinflationary cycle if you're a sovereign currency issuer that is dependent on foreign loans to keep your economy running. The Pakistani currency (the rupee, according to Wikipedia) could become worthless.

Edit: A quick perusal of the Wikipedia entry shows that Pakistan is, or was recently, in a production crisis, with significant foreign loan volume and a heavy current account deficit, meaning it's importing more than it's exporting. That looks very, very bad. It's using its loans to pay for imports because its own economy is in the toilet - in essence, using the credit card to buy food.

The primary indicator of Pakistan's imminent collapse would be for merchants to stop accepting Pakistani rupees in favor of foreign currency.

edited 14th Mar '14 3:24:27 PM by Fighteer

Singapore is really weird. It's a one-party dictatorship that is nonetheless almost completely clean of corruption. I suspect that this is partly because it's a city-state that's possible to keep under iron control, though, and partly because Singapore actually pays their politicians as much as they pay their CEOs. For example, the Prime Minister is paid five times as much as Obama.

Also, the cynic in me suggests that it's a counterexample to the old yarn about liberty and safety. Singapore's ability to control crime (including white-collar crime and political corruption) is probably enhanced by the fact that they don't need to worry too much about the civil rights of the people they investigate and accuse.

Though I do wonder why we don't see libertarians pointing at Singapore as an example of why Free Markets Work, Yo. It has no minimum wage, high income inequality, and a fairly limited welfare system...yet poverty, homelessness and hunger are almost nonexistent.

edited 14th Mar '14 2:38:20 PM by Ramidel

Too much state control, I'd bet.

edited 14th Mar '14 2:37:06 PM by Fighteer

That, or the fact that it has a welfare state (that it runs on a fraction of the per capita cost of the US system to much greater effect). Clearly, the world's second-freest economy is not free enough.

Or maybe you need strong state control and a strong welfare system to have a "free" economy.

Yeah, Singapore kind goes directly against the libertarian and Republican ideals, and is a big success anyway. Libertarians and Republicans really don't like using foreign countries as examples because the really successful ones tend to be more left-wing, like the Scandinavian countries which keep taking the top few slots of the cultural surveys.

"We don't mind paying higher taxes and higher government spending, even higher welfare expenditures, so long as we don't have a functional welfare system!"

I wish I could say that this not making sense surprised me.

I suspect that's because to Singapore, they are one and the same thing — their Politicians are the Executive Management of Singapore Pte Ltd, and the voters are the shareholders.

You know, with how badly the US economy's gotten thanks to Reaganomics, I often wonder if we'd all be better off if those ninjas had managed to keep the dudes from rescuing Ronnie all those years ago.

The people aren't the shareholders (Singaporean democracy is not very democratic; structurally speaking, it's governed by a Communist Party that's no longer communist). It's more "trickle-up economics," where carefully-limited investments in the people's social capital pay dividends for the fortunes of the PAP elite.

A better comparison would be to Utah's thoroughly right-wing state government providing free housing to the homeless as a way of cutting policing costs.

US FDIC sues 16 banks for rigging Libor

Quiznos files for bankruptcy.

Well fuck. My sister used to work for Quiznos. She's said that this has been a long time coming.